But if the rich are paying less tax there is necessarily *less* to redistribute
The rich continued to pay more and more tax under Bush, that might be changing now with the economic slowdown but until this year every year they paid more tax than the year before.
Overall they paid more tax in 2007 than in 2003 (the year when the 2nd tax cut was passed) or 2004 (when it took full effect) in terms of nominal dollars, real dollars, and percentage of income tax revenue paid, and percentage of total federal tax revenue paid)
Incidentally I think the last 8 years have proved as a practical experiment that cutting taxes, especially those taxes paid by the richest, does not improve the wealth of the majority (~85-90%)
That's pretty silly. First of all the wealth of the majority did increase after the tax cuts. Of course the opposite isn't proved either, since wealth often increases. But the point is you don't have proof of just about any general statement in regards to tax cuts from the last few years.
The most the could be reasonably claimed to have been proven is the idea that any tax cut always, in every case, and in the short term (the few years since 2004 is "short term" in this perspective), greatly increases the wealth of the majority, or increases the wealth of the majority by a moderate amount that is clearly and definitely traceable to the tax cut, even if the government continues to spend more and borrows to make up the difference.
But just about no one would make a claim like that (I imagine literally no one would make that exact claim word for word, but a very few might make a simpler less specific statement that hints at the same effect).
Tax cuts encourage growth at the margin, but their are millions of other factors operating at all times.
Also the positive effects of tax cuts are countered by the negative effects of deficit spending.
Tax cuts leave more money in the private sector, but borrowing pulls money from the private sector. There could still be two positive impacts 1 - A Keynesian short term stimulus (which even to the extent it works may be a bad idea, and at best is pushing growth now at the expense of possibly creating problems later), and 2 - That government borrowing (at least within reason, when it isn't done in such a way as to cause large inflationary pressures, or create a crisis in confidence that government can manage the debt) is less distorting than our complex tax system.
A very simple flat or fairly flat tax with few or no special benefits or penalties, and moderate to low top marginal rates, would create minimal distortion. People wouldn't change what they do much in order to lower their tax bill.
But our current tax scheme, full of loopholes, then limitations to the loopholes, and maybe sometimes loopholes within those limitations, and with significant top marginal creates a lot of distortion with people doing different things than they otherwise would have done in order to get a break on their taxes. This reduces the efficiency of investment in terms of pre-tax returns, and generally means that people (at the margin) do things that would otherwise be suboptimal for them, because of the effects of the tax.
Borrowing (only up to a point, but for the United State that's a very large point) causes less distortion. If you want to loan money to the feds you don't have to change what you do in order to qualify for credits or benefits, you just purchase treasury securities.
But there are a number of problems with increasing levels of government debt, just one of which is the fact that it creates pressure for future tax increases, so to the extent that the debt, and payments on it, are growing faster than the long term growth rate of the economy, this is only a short term solution.
A much better solution would be restraint on spending, simplifying taxes (which includes getting rid of credits and benefits, so it would tend to raise tax revenue while it reduces dead weight loss), and then cutting tax rates.
But the political process rarely creates strong incentives to do that. Usually the incentives run in the opposite direction. |
